United States: Public Mergers And Acquisitions

FDI capital has been rising in the past few years. In the first
6 months of 2017, the total FDI capital to Vietnam is USD19.2
billion, an increase of 54.8% compared to the same period last
year. Vietnam's M&A market continues to be active in 2017
after reaching a record-breaking deal value of USD5.8 billion in
2016. The number of M&A deals amounts to 2,062 deals worth
USD1.8 billion from January – May 2017, up 116.2% compared
with the statistics last year.

Real estate continues to be the most attractive sector, with
hundreds of millions of USD waiting to be poured into the market
via M&A, especially in residential, offices, retail, hotel and
industrial park segments. Main investors still come from Japan,
Korea, Singapore, and particularly a rising number of investors
from China recently. The retail, consumer goods, and industrial
goods are also very active, with M&A deals accounting for 53%
of total deals in 2016. This is partly due to an attractive market
of about 93 million people with high purchasing power.

Notable deals in 2016 and first half of 2017 include the
following:

Central Group (Thai Group) bought BigC Vietnam at USD1.1
billion

TTC Holdings (Thailand) bought Metro Vietnam at USD710
million

In March 2017, Siam City Centre bought 65% of Holcim Vietnam
from LafargeHolcim at USD524 million

In December 2016, Fraser & Neave ( a Singaporean beverage
company) bought 5.4% of Vinamilk's shares at USD500
million

Note: Owner of Fraser & Neave is also owner of TTC
Holdings

In January 2016, Mobifone bought 95% of AVG's shares at
USD400 million

Leading companies in the sectors are main target of foreign
investors. They have the advantage of holding strong brands, strong
market share or controlling significant natural resources.

We hope that the M&A will continue its trend when the
Government speeds up the equitization of many state-owned
enterprises, especially in power, infrastructure and
telecommunication sectors. Experts forecast the total value of
M&A deals in 2017 will reach up to USD6.2 -6.5 billion.

How to obtain control of a public company

The most common means of obtaining control over a public company
are as follows:

The acquisition of shares/charter capital through:

buying shares/charter capital from the existing shareholders of
the company;

buying shares/charter capital of a listed company on the stock
exchange; and

public share purchase offer.

Through a merger. The 2014 Law on Enterprises sets out the
procedures for company mergers by way of a transfer of all lawful
assets, rights, obligations and interests to the merged company,
and for the simultaneous termination of the merging companies.

Through the acquisition of assets.

There are restrictions on the purchase of shares/charter capital
of local companies by foreign investors in certain sensitive
sectors. In addition, the law is silent on merger or assets
acquisition (e.g., business spin-off) transactions where a
foreign investor is a party. Regarding other assets acquisition
transactions, if the asset is a real property, foreign ownership
right will be restricted according to real estate laws.

Securities of public companies must be registered and deposited
at the Vietnam Securities Depository Centre before being
traded.

Depending on the numbers of shares purchased, an investor can
become a controlling shareholder. Under the Vietnam Law on
Securities, a shareholder that directly or indirectly owns 5% or
more of the voting shares of an issuing organization is a major
shareholder. Any transactions that result in more than 10%
ownership of the paid-up charter capital of the securities company
must seek approval of the State Securities Commission (SSC).

What a bidder generally questions before making a
bid

Before officially contacting the potential target, the bidder
conducts a preliminary assessment based on publicly available
information. The bidder then contacts the target, expresses its
intention of buying shares/subscribing for its shares and the
parties sign a confidentiality agreement before the due diligence
process. The confidentiality agreement basically includes
confidentiality obligations in performing the transaction. The
enforcement of confidentiality agreements by courts in Vietnam
remains untested.

A bidder's legal due diligence usually covers the following
matters:

Corporate details of the target and its subsidiaries,
affiliates and other companies that form part of the target.

Contingent liabilities (from past or pending litigation).

Employment matters.

Contractual agreements of the target.

Statutory approvals and permits regarding the business
activities of the target.

Restrictions on shares transfer of key
shareholders

Founding shareholders can only transfer their shares to other
founding shareholders of the company within three years from the
issuance of the Enterprise Registration Certificate. After then,
the shares can be transferred freely. An internal approval of the
general meeting of shareholders is always required if:

The company increases its capital by issuing new shares.

There is any share transfer of the founding shareholders within
the above three-year period.

If the sale and purchase is a direct agreement between the
company and the seller in relation to an issuance of shares, the
selling price must be lower than the market price at the time of
selling, or in the absence of a market price, the book value of the
shares at the time of the approval plan to sell the shares. In
addition, the selling price to foreign and domestic buyers must be
the same.

When a tender offer is required

A tender offer is required in the following cases:

Purchase of a company's circulating shares that results in
a purchaser, with no shareholding or less than a 25% shareholding,
acquiring a 25% shareholding or more.

Purchase of a company's circulating shares that results in
a purchaser (and affiliated persons of the purchaser), with a 25%
or more shareholding, acquiring a further 10% or more of
circulating shares of the company.

Purchase of a company's circulating shares that results in
a purchaser (and affiliated persons of the purchaser), with a 25%
shareholding or more, acquiring a further 5% up to 10% of currently
circulating shares of the company within less than one year from
the date of completion of a previous offer.

There is no guidance on building a stake by using derivatives.
In addition, the bidder cannot purchase shares or share purchase
rights outside the offer process during the tender offer
period.

The bidder must publicly announce the tender offer in three
consecutive editions of one electronic newspaper or one written
newspaper and (for a listed company only) on the relevant stock
exchange within seven days from the receipt of the State Securities
Commission's (SSC's) opinion regarding the registration of
the tender offer. The tender offer can only be implemented after
the SSC has provided its opinion, and following the public
announcement by the bidder.

Making the bid public

The offer timetable is as follows:

The bidder prepares registration documents for its public bid
to purchase shares.

The bidder sends the bid registration documents to the SSC for
approval and, at the same time, sends the registration documents to
the target.

The SSC reviews the tender documents within seven days.

The board of the target must send its opinions regarding the
offer to the SSC and the shareholders of the target within 14 days
from receipt of the tender documents.

The bid is announced in the mass media (although this is not a
legal requirement).

The length of the offer period is between 30 and 60 days.

The bidder reports the results of the tender to the SSC within
10 days of completion.

Companies operating in specific sectors (such as banking,
insurance, and so on) can be subject to a different timetable.

Offer conditions

A takeover offer usually contains the following conditions:

The terms and conditions of the offer apply equally to all
shareholders of the target.

The relevant parties are allowed full access to the tender
information.

The shareholders have full rights to sell the shares.

Applicable laws are fully respected.

An offer can also be subject to conditions precedent. Conditions
precedent are set out in the share sale and purchase agreement or
the capital contribution transfer agreement. There is no specific
restriction on conditions precedent other than the requirement that
they cannot be contrary to law and conflict with social ethics
(although the legal definition of social ethics is unclear). The
most common conditions precedent are:

Amendments to the charter/relevant licence of the target.

Obtaining necessary approvals to conduct the transaction.

Changes to the target's management body.

Payment of the contract price will only be made after the
conditions precedent are met.

Employee consultation

There is no requirement under Vietnamese law that the employees
must be consulted about the offer. However, if a layoff is to be
conducted, the employer must:

Prepare a labour usage plan.

Consult with the employee representative.

Notify the competent labour authority on the implementation of
the labour usage plan.

When a tender offer is required?

A tender offer is required in the following cases:

Purchase of a company's circulating shares that results in
a purchaser, with no shareholding, or less than a 25% shareholding,
acquiring a 25% shareholding.

Purchase of a company's circulating shares that results in
a purchaser (and affiliated persons of the purchaser), with a 25%
or more shareholding, acquiring a further 10% or more of
circulating shares of the company.

Purchase of a company's circulating shares that results in
a purchaser (and affiliated persons of the purchaser), with a 25%
shareholding or more, acquiring a further 5% up to 10% of currently
circulating shares of the company within less than one year from
the date of completion of the previous offer.

Form of consideration and minimum level of
consideration

Under Vietnamese law, shares can be purchased by offering cash,
gold, land use rights, intellectual property rights, technology,
technical know-how or other assets. In practice, acquisitions are
most commonly made for cash consideration.

In cases of full acquisition of state-owned enterprises, the
first payment for the share purchase must not be less than 70% of
the value of such shares, with the remaining amount being paid
within 12 months.

In transactions involving auctions of shares by state-owned
enterprises, the purchaser must make a deposit of 10% of the value
of the shares registered for subscription based on the reserve
price at least five working days before the auction date included
in the target company's rule. Additionally, the purchaser must
transfer the entire consideration for the shares into the bank
account of the body conducting the auction within ten working days
of the announcement of the auction results.

In the case of a public tender offer, the payment and transfer
of shares via a securities agent company appointed to act as an
agent for the public tender offer must comply with Decree
58/2012/ND-CP.

Delisting a company

If a company seeks voluntarily de-listing, it must submit an
application for de-listing that includes the following
documents:

A request for de-listing.

For a joint stock company:

the shareholders' general meeting approval of de-listing of
the stock;

the board of directors' approval of de-listing of bonds;
and

the shareholders' general meeting approval of de-listing of
convertible bonds.

The members' council (for a multi-member limited liability
company) or the company's owner (for a single member limited
liability company) approval of de-listing of bonds.

For a securities investment fund, the investors' congress
approval of de-listing of the fund's certificate.

For a public securities investment company, the
shareholders' general meeting approval of stock
de-listing.

A listed company can only de-list its securities if de-listing
is approved by a decision of the general meeting of shareholders
passed by more than 50% of the voting shareholders who are not
major shareholders.

If a company voluntarily de-lists from the Hanoi Stock Exchange
or Ho Chi Minh Stock Exchange, the application for de-listing must
also include a plan to deal with the interests of shareholders and
investors. The Hanoi Stock Exchange or Ho Chi Minh Stock Exchange
must consider the request for de-listing within ten and 15 days
from the receipt of a valid application, respectively.

Transfer duties payable on the sale of shares in a
company

Depending on whether the seller is an individual or a corporate
entity, the following taxes will apply:

Capital gains tax. Capital gains tax is a form
of income tax that is payable on any premium on the original
investor's actual contribution to capital or its costs to
purchase such capital. Foreign companies and local corporate
entities are subject to a corporate income tax of 20%. However, if
the assets transferred are securities, a foreign corporate seller
is subject to corporate income tax of 0.1% on the gross transfer
price.

Personal income tax. If the seller is an
individual resident, personal income tax will be imposed at the
rate of 20% of the gains made, and 0.1% on the sales price if the
transferred assets are securities. An individual tax resident is
defined as a person who:

stays in Vietnam for 183 days or longer within a calendar
year;

stays in Vietnam for a period of 12 consecutive months from his
arrival in Vietnam;

has a registered permanent residence in Vietnam; or

rents a house in Vietnam under a lease contract of a term of at
least 90 days in a tax year.

If the seller is an individual non-resident, he is subject to
personal income tax at 0.1% on the gross transfer price, regardless
of whether there is any capital gain.

Payment of the above transfer taxes is mandatory in Vietnam.

Regulatory approvals

The investor will need to register the capital contribution and
purchase of shares if either:

The target is operating in one of the 267 conditional sectors
referred to in the 2015 Investment Law.

The capital contribution and purchase of shares results in
foreign investors owning 51% or more of the target's charter
capital (in particular, from below 51% to more than 51% and from
51% to above 51%).

The local Department of Planning and Investment where the target
is located must issue its final approval within 15 days from the
receipt of a valid registration application. However, in practice,
this procedure can take several months due to the workload of
certain central authorities and the lack of clear guidance
documents. Therefore, the registration requirement can cause
substantial delays to the whole M&A process.

In other cases, the target company only needs to register change
of membership / shareholders at the Business Registration
Division.

Restrictions on repatriation of profits and/ or foreign
exchange rules for foreign companies

If the target company in Vietnam already has an investment
registration certificate, it must open a direct investment capital
account at a licensed bank in Vietnam. Payment for a share purchase
by a foreign investor must be conducted through this account. The
account can be denominated in Vietnamese dong or a foreign
currency. In addition, if the foreign investor is an offshore
investor, it will also need to open a capital account at a
commercial bank operating in Vietnam to carry out the payment on
the seller's account and receive profits.

If the target company in Vietnam does not have an investment
registration certificate, the foreign investor will need to open an
indirect investment capital account for payment to the seller and
remittance of profits.

Disclaimer:This Alert has been
prepared and published for informational purposes only and is not
offered, nor should be construed, as legal advice. For more
information, please see the firm's
full disclaimer.

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